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Jordan: Amman Bus Rapid Transit - Renewed Commitment

Wednesday, 04 August 2010 12:12

The commencement of work on Amman’s Bus Rapid Transit (BRT) system in mid-July has come been widely welcomed by Jordan’s construction sector. At a time when contractors in the kingdom have kept busy with public projects due to a dearth of private sector real estate work, the government’s renewed commitment to its development agenda will offer much-needed solace to Jordanian construction companies.

The decision of Prime Minister Samir Rifai to lay the foundation stone for the BRT himself illustrates the importance that the government has placed on such infrastructure projects to stimulate the economy and improve the urban environment. The $170m project will see the construction of three dedicated bus routes totalling 30 km of new lanes that will criss-cross the capital in a bid to ease congestion and pollution. With the population expanding at a rate of 2.2% per year, such measures are seen as essential to sustaining growth and improve living conditions in Amman specifically and Jordan more generally.

The BRT is just the latest in a long line of land transport initiatives that are aimed at maintaining the flow of goods and people throughout the country’s major cities and transport corridors. Infrastructure projects like this have largely insulated contractors and construction companies from the worst effects of the slowdown in the national economy and the fallout from a real estate sector. For while the mood in the construction industry has been sombre for more than 18 months, the figures have been defying the odds.

The construction sector recorded strong growth in each quarter of 2009 in comparison to the same period of 2008, reaching 12.8% from October to December. The banking sector has also retained a surprising level of confidence, increasing credit to the sector by 12.6% in 2009 to JD2.6bn ($3.7bn). Indeed, at a time when economic growth had slowed to 2.8%, the lowest since the economic crisis of 1989, the kingdom’s construction sector recorded a real growth rate of 14% in 2009.

Much of this activity centred upon infrastructure projects in the fields of energy and transport. While the government has introduced austerity measures and budget cuts of $1.4bn for 2010 to stem the widening of a budget deficit that has reached 9% of GDP, a backlog of plans and projects for public works has fed the construction industry. The Ministry of Public Works and Housing has an annual budget of approximately JD130m ($183.1m), which rose to JD180m ($253.5m) last year, illustrating a renewed focus on the upgrade and maintenance of the country’s public infrastructure. This is also demonstrated by the outstanding JD500m ($704.2m) inventory for major road projects tendered in the years 2008 and 2009.

The flagship road projects, which have occupied contracting and engineering firms, are the JD160m ($225.4m) Amman ring road project, co-funded by the World Bank, the Arab Fund for Economic and Social Development, and the European Investment Bank, and the JD80m ($112.7m) widening of the airport road within Amman’s municipal limits. The latter project is expected to be complete by the end of 2011, with the first phase of the former concluding at the same time. This has led some within the industry to express concern that the glut of public projects may begin to dry up. Such a view has been reinforced by a government decision in September 2009 to effectively freeze new public spending on infrastructure projects until the budget deficit eases and the dependence on donor funding lessens.

In such circumstances, the commencement of work on the BRT system will assuage fears that existing contracts may also grind to a halt, leaving contractors wondering where to turn. There are also signs, however, that these contractors will have little reason to fret. As the public contracts that bolstered the industry while the regional construction sector was being buffeted by the global economic crisis slow down, the private contracts in the real estate sector may begin to return.

The first tendrils of recovery have already been seen, with real estate trading increasing by 20.2% to JD1.13bn ($1.6bn) in the first three months of the year. Zuhair Omar, the president of the Housing Investors Society, told the Jordan Times, “The demand is on the rise because there is concern in the market that prices of apartments will increase.” In the first quarter alone, 4637 apartments were sold, with residential sales for the first half of 2010 increasing by 17%.

While the current construction industry figures do not look quite as good, with a 2.24% decline in the sector in the first quarter compared to the strong performance of the previous year, such renewed investor interest in real estate should get the cement mixers turning, reactivating projects and broadening the options for contractors.

Global Arab Network

This article is published in partnership with Oxford Business Group

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Last Updated on Sunday, 08 August 2010 19:11

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